Thoughts from a Canuck

2010.09.21

How Misery is Created

the picture changes in 2013. Under the healthcare law adopted in March, the Medicare tax will rise that year, from 2.9 to 3.8 percent. Also, a new 3.8 percent tax, called the Unearned Income Medicare Contribution (UIMC), will be imposed on high-income taxpayers’ interest income and most of their pass-through business income that’s not subject to Medicare tax. So, under the president’s proposal, virtually all of top earners’ ordinary income will be taxed at 44.6 percent, starting in 2013. We’re not just going back to the Clinton-era rates of 40.8 and 43.7 percent.

A similar pattern holds for capital gains. Under the president’s plan, in 2011 and 2012, the top rate on gains, now 15 percent, will go to 20 percent, with the stealth provision adding 1.2 percentage points, sending the tax back to its 1997–2002 level of 21.2 percent. Starting in 2013, though, capital gains will also be hit by the UIMC, pushing the rate to 25.0 percent.